RBI Co-Lending Directions 2025: What Changed and How Credit Processes Must Adapt

The governing instrument is the Reserve Bank of India (Co-Lending Arrangements) Directions, 2025 — RBI/DOR/2025-26/139, DOR.STR.REC.44/13.07.010/2025-26, dated 6 August 2025, in force from 1 January 2026. It supersedes the 2020 priority-sector co-lending circular, opens co-lending to every loan category, and requires each lender to retain at least 10% of every individual loan.

Key facts

• One instrument, one commencement date. Paragraph 2: "These Directions shall come into force from January 1, 2026, or from any earlier date as decided by a RE as per its internal policy" (RBI, Co-Lending Arrangements Directions, 2025). Early adoption is a choice each regulated entity makes in its own policy, not a regulatory concession you have to apply for.
• The 2020 framework is gone. The Directions supersede Co-Lending by Banks and NBFCs to Priority Sector, RBI/2020-21/63, FIDD.CO.Plan.BC.No.8/04.09.01/2020-21, dated 5 November 2020 (RBI). That circular carried a 20% minimum NBFC retention and made the NBFC the single point of interface. Both of those rules have changed.
• Retention is now symmetric and per-loan. Paragraph 10: "Each RE under a CLA shall be required to retain a minimum 10 per cent share of the individual loans in its books." Not 10% of the portfolio — 10% of each loan.
• Settlement has a hard clock. Paragraph 22 requires each RE's share to be reflected in both sets of books "in any case not later than 15 calendar days from the date of disbursement." Miss it and paragraph 24 leaves the whole loan on the originating RE's books.
• The credit file has to satisfy two credit committees, not one. YuSight customers report 3x faster decision turnaround, which matters more in co-lending than anywhere else: a file that has to clear two independent approval chains pays the manual-preparation penalty twice.

Which instrument is in force, and what exactly did it replace?

Confirm on the RBI notification page whether any amendment or FAQ set has been issued against the Co-Lending Directions since 6 August 2025 before quoting paragraph numbers in a board note.

The grandfathering point people get wrong. Paragraph 3 says existing CLAs — "the lending arrangements executed before the date of issuance of these Directions" — shall be in compliance with the extant regulations. That is not a licence to keep writing new loans on the old terms under an old master agreement. Read it as covering arrangements already executed; anything you originate after commencement under a fresh arrangement sits under the 2025 Directions. Get legal to write that determination down before your first post-commencement disbursement.

Which arrangements are in scope, and which are not?

In scope (para 4) — co-lending between:

• Commercial Banks, excluding Small Finance Banks, Local Area Banks and Regional Rural Banks
• All-India Financial Institutions
• NBFCs, including Housing Finance Companies

Out of scope (para 6) — multiple banking, consortium lending and syndication. Those are separate structures with their own rules and are not converted into CLAs by the 2025 Directions.

The scope change that matters most. The 2020 circular was a priority-sector instrument. The 2025 Directions are not. Paragraph 15 addresses priority-sector status as one available consequence — REs in a CLA for loans eligible to be classified under PSL can claim priority sector status — rather than as the precondition for co-lending at all. In practice this legitimises co-lending in unsecured personal loans, used-vehicle finance, LAP above PSL limits and consumer durables, none of which sat comfortably in the old framework.

If a co-lending arrangement is also delivered through a digital lending journey, the Digital Lending Directions apply on top. Both instruments bite. The disbursement-routing rules in the digital lending framework are set out clause by clause in our working checklist for the RBI digital lending guidelines.

What are the risk-sharing and retention requirements?

Three provisions, and they interlock:

1. Paragraph 10 — minimum 10% retention. Each RE retains at least 10% share of the individual loans in its books. The floor applies loan by loan, not to the blended portfolio, so an 95:5 split on a single large ticket is non-compliant even if the aggregate book is 80:20.
2. Paragraph 21 — the partner RE commits up front. The partner RE must commit to taking its share of individual loans into its own books. There is no "take it if we like it after origination" structure surviving here.
3. Paragraph 32 — DLG capped at 5%. "Originating RE may provide default loss guarantee up to five per cent of loans outstanding in respect of loans under CLA," governed mutatis mutandis by the Digital Lending Directions.

Read 10 and 32 together and the economics are explicit: the originating lender keeps at least 10% of each loan and may guarantee up to 5% of loans outstanding. Paragraph 20 closes the obvious workaround — fees payable for lending services "shall not involve … any element of credit enhancement/default loss guarantee unless permitted otherwise." A service fee that is really a first-loss cover is not a service fee.

One capital consequence NBFCs frequently miss. Paragraph 16: NBFCs booking unrealised profit under CLAs must deduct such profits "from CET 1 capital or net owned funds for meeting regulatory capital adequacy requirement till the maturity of such loans." Day-one gain recognition does not translate into day-one capital.

How do escrow and settlement actually work?

Paragraph 26 is the plumbing clause, and it is broader than the 2020 version:

"All transactions (disbursements / repayments) between the REs, as well as with the borrower, shall be routed through an escrow account maintained with a bank (which could also be one of the REs involved in CLA). The agreement shall clearly specify the manner of appropriation between the originating and partner REs."

Note "as well as with the borrower." Borrower-facing flows go through the escrow too, not just inter-lender settlement. And the appropriation waterfall — who gets paid first out of a part-recovery — must be in the agreement, not decided at the time of the shortfall.

Then the clock. Paragraph 22: shares reflected in the books of both REs "in any case not later than 15 calendar days from the date of disbursement." Paragraph 24: if the originating RE cannot transfer the partner's share within 15 calendar days for any reason, the loans remain on the originating RE's books. Paragraph 23 restricts the originating RE to transferring only to the partner RE under the ex-ante agreement, and paragraph 25 requires each RE to maintain the borrower's account individually for its own share.

Worked example: one loan, two lenders, fifteen days

Illustrative figures constructed to show the arithmetic. Not drawn from any actual arrangement.

An NBFC originates a ₹50,00,000 secured business loan. The bank partner funds 80%; the NBFC retains 20% — above the 10% floor.

Sanctioned amount ₹50,00,000 Originating RE (NBFC) share, 20% ₹10,00,000 Partner RE (bank) share, 80% ₹40,00,000 Minimum retention required of each RE, para 10 10% = ₹5,00,000 Compliance check: both shares ≥ ₹5,00,000 PASS Interest rate charged by the NBFC on its share 16.50% p.a. Interest rate charged by the bank on its share 9.75% p.a. Blended rate (para 17), weighted by share (0.20 × 16.50%) 3.30% (0.80 × 9.75%) 7.80% Blended interest rate to the borrower 11.10% p.a. Processing fee retained by the NBFC (1.0%) ₹50,000 → enters the APR under para 19 and appears in the KFS

The settlement timeline

The arithmetic that matters to a treasury team is in the counterfactual row. Fifteen calendar days from a Monday disbursement expires on a Tuesday — and calendar days include the two intervening weekends and Republic Day on 26 January. A settlement process built around eleven working days breaches a fifteen calendar day rule. Build the check into the disbursement queue, not into a month-end reconciliation.

What must the borrower be told?

The single-point-of-interface change is quietly significant. Under the 2020 circular the NBFC was the customer-facing entity by rule. Under paragraph 13 the parties choose, and the choice is disclosed. That is more flexible and more dangerous: if the agreement is silent or ambiguous, the borrower has no defined counterparty and your grievance redressal fails on first contact.

Who owns default, classification and recovery?

Paragraph 33 is the clause that removes discretion:

"REs shall apply a borrower-level asset classification for their respective exposures to a borrower under CLA, implying that if either of the REs classifies its exposure to a borrower under CLA as SMA / NPA on account of default in the CLA exposure, the same classification shall be applicable to the exposure of the other RE to the borrower under CLA."

So the more conservative lender's stamp wins, and it wins on the other lender's balance sheet. Classification information must be shared promptly — the Directions require exchange by the end of the next working day.

Two mechanical consequences:

1. Your day-end process now depends on someone else's day-end process. SMA and NPA classification is stamped at day-end on the calendar date under RBI/2021-2022/125 of 12 November 2021. If your partner stamps SMA-2 on 30 May and tells you on 2 June, you have three days of stale classification in your own book. The countdown mechanics are set out in SMA-0, SMA-1 and SMA-2 classification: the 90-day countdown, and the provisioning consequences in IRAC norms explained.
2. Bureau reporting stays separate. Paragraph 31: each RE reports to credit information companies "for their share of the loan account." Two tradelines, one borrower, one classification. An analyst reading the borrower's CIBIL commercial report will see both, and a mismatch between them is a live audit finding.

On recovery, the Directions do not hand the file to one party by rule. Paragraph 12 requires the agreement to set out segregation of responsibilities and the time-frame for exchanging critical information; paragraph 26 requires the appropriation waterfall to be specified; paragraph 28 requires a business continuity plan for uninterrupted service "till repayment." Put together: recovery ownership is a contractual allocation you must draft, and the regulator will look for it in the agreement.

What actually changes in the appraisal process?

This is the table to take into your next credit-process review.

The row that will consume the most meeting time is the fourth one. The Directions do not spell out that the partner RE must independently appraise every borrower. What they do is make the partner hold at least 10% of every loan and wear the originator's SMA/NPA stamp. Regulatory silence plus real economic exposure is not a reason to rely blindly — it is a reason to decide your standard deliberately and write it down. In practice, most bank partners land on full re-underwriting for tickets above a threshold and sampled review below it, with automatic full review triggered by segment drift or a partner's rising early-delinquency rate.

Where two-lender appraisal actually breaks

Five failure modes, in the order they show up in audit.

1. Two spreads, two answers. Each RE spreads the same financials and gets different DSCR because of different treatment of director's remuneration or unsecured loans from promoters. There is no adjudication mechanism unless you drafted one. Fix it in the agreement's borrower-selection criteria.
2. The partner's file is a PDF pack. Documents arrive as an emailed zip, get re-keyed, and the partner's credit note cites figures that no longer tie to the source pages. The methodical version of this problem is set out in three-way triangulation of GST, ITR and bank statement turnover.
3. The blended rate is computed once and never revisited. Paragraph 18 lets each RE change its own rate per its credit policy. A floating-rate reset at one lender changes the borrower's blended rate — and the KFS is only correct if someone recomputes it.
4. Day-15 slips silently. Nothing in a typical LOS flags calendar-day-15 on a disbursement. It surfaces at month-end, by which time paragraph 24 has already decided where the loan sits.
5. Classification arrives by email. The partner's SMA stamp is communicated by a relationship manager rather than by a system feed, so it lands late and is not audit-evidenced.

Every one of these is a handoff problem rather than a credit-judgement problem. That is why the co-lending case for automation is a workflow case first and an extraction case second: a single platform where document classification, spreading, ratio computation and the memo all carry citations back to a source page and a timestamped audit trail means the partner RE is reviewing the same evidence, not a re-typed summary of it. The broader design is covered in the credit appraisal process in Indian banks and, for the memo itself, in the credit appraisal note format used by Indian lenders.

FAQ

What changed in RBI's 2025 co-lending directions?

Four things matter most. Co-lending is no longer restricted to priority sector lending, the minimum retention became 10% of each individual loan for both lenders instead of 20% for the NBFC alone, all flows including borrower flows must route through an escrow account, and asset classification is now synchronised at borrower level across both lenders.

Do co-lending rules now cover all loan categories?

Effectively yes. The 2020 circular was a priority-sector instrument; the 2025 Directions treat priority-sector status as something you can claim under paragraph 15 where the loan qualifies, rather than as the precondition for co-lending. Multiple banking, consortium lending and syndication remain outside the framework.

Who owns the credit decision in co-lending?

Both lenders do, for their own share. The Directions do not expressly require the partner to independently appraise each borrower, but paragraph 11 requires each lender's credit policy to address CLAs and paragraph 10 keeps at least 10% of every loan on each lender's books. Decide your reliance standard and write it into the policy.

What is the minimum share each lender must retain?

Ten per cent. Paragraph 10 requires each regulated entity in a co-lending arrangement to retain a minimum 10% share of the individual loans in its books. It is a per-loan test, so it cannot be satisfied on a portfolio average.

How is the interest rate on a co-lent loan decided?

Paragraph 17 requires the borrower to be charged a blended rate — the average of the rates charged by each lender, weighted by their shares. If an NBFC funds 20% at 16.5% and a bank funds 80% at 9.75%, the borrower pays 11.10%.

What happens if the partner lender does not fund within 15 days?

The loan stays entirely on the originating lender's books. Paragraph 22 sets the 15-calendar-day deadline for reflecting each share in both sets of books, and paragraph 24 says that if the transfer cannot be made within that window for any reason, the loans remain with the originator.

Do both lenders have to classify the account the same way?

Yes. Under paragraph 33, if either lender classifies its co-lending exposure as SMA or NPA because of a default on that exposure, the same classification applies to the other lender's exposure to that borrower under the arrangement.

Can the originating lender give a default loss guarantee?

Up to 5% of loans outstanding under the arrangement, per paragraph 32, and it is governed by the Digital Lending Directions. What you cannot do is hide a guarantee inside a service fee — paragraph 20 rules out any element of credit enhancement or default loss guarantee in the fees payable for lending services.

Are existing co-lending arrangements affected?

Paragraph 3 says arrangements executed before the date of issuance remain in compliance with the extant regulations. That is not an indefinite exemption for new lending under an old master agreement, so get a written legal determination on which of your arrangements sits under which regime before your first post-commencement disbursement.

Does the NBFC still have to be the borrower's single point of contact?

No. The 2020 circular made the NBFC the single point of interface by rule. Under paragraph 13 the parties choose, and the loan agreement must clearly identify which entity it is, alongside the segregation of sourcing and servicing roles.

Key takeaways

• Cite RBI/DOR/2025-26/139, DOR.STR.REC.44/13.07.010/2025-26, dated 6 August 2025, in force from 1 January 2026. If your compliance register still points at FIDD.CO.Plan.BC.No.8/04.09.01/2020-21, it points at a superseded instrument.
• Retention is 10% of every individual loan for every lender. Enforce it at sanction with a system rule, not at review with a report.
• Fifteen calendar days is a hard settlement deadline with a defined consequence: the loan stays with the originator.
• The blended rate is what the borrower pays and what the KFS must show. Recompute it whenever either lender re-prices.
• Nothing in the Directions tells the partner lender how deeply to appraise. That silence makes it a policy decision you must make explicitly, document under paragraph 11, and evidence in the file.

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